One of the famous quotes of Ayn Rand reads, "I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows."

Fine! I don't
think that a majority of even die hard Republicans would be so egoist
and solipsist. Indian Finance Minister Arun Jaitley, while giving his
first post-budget interview to an English daily The Times of India,
when asked about whether the first budget he presented was a
thanksgiving budget for the middle class voters, replied, "It was
because of my own and Prime Minister Narendra Modi's economic
ideology that lower taxation will lead to more economic activity,
more spending and more saving."

In
Focus

The fact is that it is very old
capitalist thinking that lower taxation helps the economy and all
classes. As former British Prime Minister, Winston Churchill, who
served the country twice, once famously said, "We contend that for
a nation to try to tax itself into prosperity is like a man standing
in a bucket and trying to lift himself up by the handle."

I do agree that lower taxation is good
at least for the middle classes and above ones, but it requires some
quantification and clarification. While it is true that lower
taxation will leave more liquidity and therefore, more buying power
in the hands of common man but still one needs to be worried about
consciousness driven, though very much required at present,
subsidies, and pressure on printing because of the two.

While it is true that lower taxation
may spur economic activity and higher consumption and therefore, such
would contribute to growth, the point is whether government's
revenues would decrease or increase in net by attempting so. If they
do decrease then the government would be compelled to print more and
borrow more.

This would put upward pressure on
inflation and therefore, may act as a self-correction to consumption.
But suppose that tax revenues are not decreased by lowering down the
tax slabs and removing or decreasing some direct and indirect taxes.
Even then such a step could put a lot of pressure on the Indian Union
government.

The
point is that increased consumption by middle and upper classes would
induce some much expected reactions among the most needy and poor.
After all, all of us are humans. Call it a consequence of rising
consciousness or inevitable result of high matured stage of
Anthropocene as evident in converging psychological evolution in many
parts of world but
definitely in India, all of us, at least in India, are becoming more
ambitious and aspiring.

Therefore, all Indians would like to
consume and more. But if the middle classes don't consume much, the
poor will adjust accordingly. This is the uniqueness of India.

But then many of us don't have money
to afford even our basic necessities. Therefore, subsidies matter a
lot and consumption is practically a cascading reaction starting from
the very top and ending at the possible bottom of the society. Now it
should be rather obvious that in order to let all Indians afford the
very basic things in our daily lives, the Union government would have
to provide huge subsidies, whether the Modi-government likes it or
not.

The populism is also very well
supported by politicians who many times have genuine reasons to
resort to it and promise populist measures, otherwise unhealthy and
imprudent. The process cannot be reversed after irreversibility has
arrived as far as consciousness and awareness is concerned.

Moreover, a high consuming and growing
society expects a lot from its government and the Union government
would require a huge sum to invest in infrastructure and other
necessities to meet the elites' expectations. The competition from
peers puts a lot of additional pressure.

Therefore
this requires huge funding and tax receipts, money resulting from
disinvestment plans, money coming to India
by foreign institutional investors, Indian expatriates, foreign
grants and aids, assets sales, some cosmetic reduction in government
expenditure, taming corruption and making more efficient governments,
may not be sufficient to fund all the required subsidies.

Anyway, the governments do require
huge money to invest in public good and all kind of social and
physical infrastructure. So, the Union government has two additional
tools at its disposal: to borrow more and print more. There are
constraints up to which the Indian government can borrow without
facing heat and undue pressure and printing is ethical up to a point.

Therefore, the increased consumption
by able and largely independent classes may result in demands for
higher subsidies by those who are not so. Subsidies would be taxing
on the rising classes and the nation as a whole. Thus there is a
balancing factor in the consumption, saving and growth. It is not an
open ended game. Inflation can balance the rising aspirations of the
middle and upper classes.

One needs to understand that lower
rates are helpful in societies where subsidies are low and the
economy is expansive. The case of Islamic world is different as they
do it for the sake of economic doctrines outlined in Shariah and many
of them are able to do it rather neatly because of revenues generated
by oil-sales. Therefore, mostly Western societies and their polar
counterparts can genuinely keep low tax rates.

Anyway, whether it is applicable
elsewhere or not the fact is that Indian Union government has to be
tricky while deciding about reducing taxes; direct and indirect. In
India capitalism is a must but in patches. No matter how
free-thinking the government be, the fact is that it cannot leave the
helpless people in pathetic state as they are now. It is mostly
intolerable now.

So, while it is imperative that levels
of printing of the past be maintained by this government after
accounting for growth and changing times, the same is true about
taxation. But sure, one must quantify it. A drop in tax rates
somewhere in between 1 per cent to 3 per cent could be helpful but
definitely not beyond that. I am almost certain about it and also
true to myself. There is nothing that Mr. Jaitley could do. Neither
the Prime Minister Modi himself. It requires consensus in both the
Houses of Parliament to arrive at decision about population.

The fact is that time has passed when
added population as a whole used to give demographic dividends to the
Indian state and its people. It's mostly a burden now and we need
to do something about it whether the rest of the world does it itself
or not. There is no point in having human suffering because few
Indians could earn a lot. Rest assured, a majority of others won't
get more than few cents in real time at INR's sound buying power
level.

And as Alexander Fraser Tytler, a
Scottish judge and writer once remarked: "A democracy cannot exist
as a permanent form of government. It can only exist until the people
discover they can vote themselves largess out of the public treasury.
From that moment on, the majority always votes for the candidate
promising the most benefits from the public treasury, with the result
that democracy always collapses over a loose fiscal policy—to be
followed by a dictatorship."

Another reason to celebrate the caste
system! India probably has too many defense mechanisms. Mr. Tytler's
words just cannot come true in India. Sure, he is proved wrong on the
free world and by bigger measure but for different reasons. To be
correct, the caste system acts against too much populism and courting
against a single majority.

Then by
the same arguments shouldn't subsidies be denied to unprivileged
and underprivileged? The answer is it will be promised and delivered
from New Delhi
and state capitals, whether it reaches the targeted people or not is
quite a different thing.

We will face all the consequences of
it. Whether it benefits the needy and poor to the extent desired or
not is a completely different thing. But sure, true democracy may be
lost in India while attempting to strike a balance between populism
and fiscal rationalism. All of us should be cautious about the future
that may lie ahead of us.

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